Online Financial Courses - Strategic Planning

Course 4: Strategic Planning

Chapter 1: Preliminary Considerations

What is Strategic Planning?

The essence of management includes the ability to plan. As you work your way up the organization, planning moves from operational to strategic. Strategic Planning is one of the principal responsibilities of upper-level management. Once management decides on the Strategic Plan, lower-level managers implement the Strategic Plan through an Operating Plan.

Strategic Planning attempts to answer a very fundamental question: Where do we want to be one year from now, two years from now, three years from now, etc.? Strategic Planning requires that an organization develop a vision of itself - how do we see ourselves in the future? Strategic Planning looks at the big picture from a long-range perspective whereas the Operating Plan represents the specific tactics for carrying out the Strategic Plan year to year.

Why do Strategic Planning?

Strategic Planning helps management understand the current situation. This in turn allows management to plan for the future. In a world of rapid change, it is becoming imperative for management to think strategically (plan for the future). And since the rate of change seems to be escalating, the importance of strategic planning continues to grow. In fact, the best-managed companies tend to engage in continuous strategic planning. Some organizations have intuitive thinkers who almost seem to see into the future. Therefore, strategic planning is a way of preparing for the future by attempting to simulate the future.

Strategic Planning has a tendency to force people to think about the future. This is extremely important since many organizations are inward thinking, focusing too much on the short-term. Strategic planning looks at the long-term which is how organizations survive and thrive. It has been proven that organizations that focus on the long-term through strategic planning outperform organizations that lack long-term planning. Consequently, one of the benefits of strategic planning is long-term performance and growth. Another benefit of strategic planning is communication. Strategic Plans communicate the intentions of management to employees, shareholders, and others.

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Limitations of Strategic Planning

Strategic Planning should not be viewed as a guarantee to future success. Strategic Planning has limitations, such as the following:

1. Strategic Planning is not a way of making future decisions. There is no way anyone can predict the future. Strategic Planning provides overall guidance and direction based on what we think will happen.

2. Strategic Planning is not a blueprint for the future. There are too many changes taking place - marketplace is changing, customer preferences are changing, new competition, new technologies, new opportunities, declining financial condition, etc. Strategic Planning is a dynamic process, which is receptive to change.

3. Strategic Planning cannot resolve critical situations threatening the organization. Strategic Planning will not get you out of a crisis. The organization should be stable before engaging in strategic planning.

4. Strategic Planning should not replace good intuitive judgements. If an organization is lucky enough to have good intuitive thinkers, then exercise extreme care before embarking on formal strategic planning. You do not want to destroy intuitive thinking within the organization.

5. Strategic Planning will not identify all critical issues related to the organization. Strategic Planning attempts to identify the most significant issues that will confront the organization. By focusing on major issues, strategic plans minimize the detail and thereby improve the chances for successful implementation.

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Specific Problems Associated with Strategic Planning

In addition to limitations, strategic planning can raise new problems for an organization. Some of the pitfalls associated with strategic planning include:

1. Strategic Planning is difficult. It requires that people think differently. Strategic planning needs to be a creative process with new ideas. Many people are not well suited for this type of decision making. New relationships and roles are often necessary within strategic planning. Some people are not comfortable with new activities and tasks.

2. Strategic Planning is time consuming. It requires the involvement of people, not to mention research time, reallocating resources, changing the organization, etc. All of this can drain the organization, especially if resources are scarce.
3. Strategic Plans can be bad! Poor assumptions, overly optimistic projections, and other bad decisions can result in a bad strategic plan. A bad strategic plan will lead to serious problems for the organization.

4. Impossible to Implement. If upper-level management fails to support the Strategic Plan, then implementation will be impossible and the overall process will have been wasted. Additionally, there can be internal resistance to strategic planning. People resist strategic planning for several reasons: Does not make sense, not enough time, do not understand why we are doing this, etc.

Since strategic planning raises critical issues, it usually leads to change. Therefore, it will be important to understand how to implement change. You can reduce the impact of change on people by following these guidelines:

1. Allow some input and involvement from people. As long as people have a say in change, they tend to accept it better.

2. Try to avoid threatening the security of people. When change affects the security of people, they will resist.

3. Make sure change follows a pattern of previous decisions that were successful. If you are trying to implement change after several failed attempts, your chances of success are poor.

4. Make sure everyone understands why change is taking place.

5. Change should take place based on planning. Change should never be experimental.
The best way to plan for change is within the strategic planning process. And since change is so prevalent throughout an organization, almost every manager should make strategic planning part of his or her job. The next step in the process is to organize how a strategic plan will be developed.

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